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In an interview with ET Now, Madhusudan Kela, Chief Investment Strategist, Reliance Capital, talks about the factors influencing the markets and his trading bets. Excerpts:

ET Now: You believe in three things -- bet, but bet big, always look at the size of the opportunity and buy company which has some kind of an competitive advantage.

Madhusudan Kela: When I hear all these debates about bear markets, actually I now start closing my eyes because to my mind, this market provides such wonderful opportunity and it has provided such wonderful opportunity in the last three years. Actually, the job of an investor to my mind has been easy in the last three years than it was in the bull market because in the bull market, to make money, you are taking disproportionate risk. So to answer your question, these companies will be there in plethora of sectors.

I would hate to pick one sector. This is a 20-year learning. Just to illustrate the point again, auto sector has been going through a tremendous upswing in the last four years. You analyse the performance of all auto companies and the answer will lie there. If you invested in Eicher Motors versus in Escorts, just to name a company, there would have been a disproportionate difference in returns. So I am saying let us not pinpoint a sector. I told you the last time we interacted that there are two strategies -- touch me and touch me not. So from those touch me not areas is where we will have to pinpoint investing areas.

ET Now: Real estate is one touch me not which you are able to touch.

Madhusudan Kela: Yes, but not the sector as a whole, but a few companies in that space.

ET Now: Why do you like banks? I would imagine that when you say banks, the PSU banks are part of the touch me not category?

Madhusudan Kela: Again, I would not categorise it fully. There are some PSU banks which may have gone through tremendous amount of restructuring... Sorry to digress a little bit, but one big thing which I have learnt as an investor in the last 20 years is people get biased positively or negatively. When they get biased negatively, they just close their eyes to any opportunity which is arising and when they get biased positively, they are unwilling to listen to any negative news.

As an investor, I have learnt this -- never be biased, never close your eyes to any opportunity. So today when you tell me PSU banking space is a sector which will not be looked at, I will never ever consider that. I will again be in a look out mode within the PSU banking sector, i.e. which is the bank which has done aggressive provisioning in the last two-three years, which is the bank which is ready and which has relatively cleaner portfolio. So whenever that cycle turns, maybe that bank will lead this time versus the other banks. So there will be stock specific opportunities in all these sectors.

ET Now: The name we have discussed in the past the JP Associates. You still like it?

Madhusudan Kela: It is still a large portion of our fund, which is reflected in our portfolio. We continue to like the company.

ET Now: What is your thought on rupee? Do you think closer to 53-54, rupee is nearing the end of its decline?

Madhusudan Kela: Lot of people have started making a case for rupee to go to 45 and 48 and 50, but I am still not there. I still believe that our current account balance is a huge challenge even for this year. It is going to be closer to 4%, versus what most estimates say, i.e. 3%. We still continue to rely a lot on FII flow, which is a matter of sentiment, it could go either way.

Though I am not a currency expert, I am of the belief that you may have a range of maybe 52-53 to 56-57. I do not rule out that the rupee will not go back to 56-57. If oil prices go up by $20-$30, it can go back to 56-57 levels. So we are in a more respectable range than what we have been in the last year but yet not very positive that it is going to cross 50 in a hurry.

ET Now: Why is that?

Madhusudan Kela: As I said, we still have a lot of challenges to face. We have a current account deficit and possibly in the last three years what has happened, you have had a 15% growth in software exports. This is the first year that your growth is less than 5%. So what was earning for you, has come down in foreign exchange terms and you have new consumption of foreign exchange, which is electronics, iPads, mobile phones etc.

ET Now: Is it quite disheartening that even as your schemes are performing, this year some of your schemes are the best performing, in fact most of your schemes are in the top quartile, you are still getting outflow on a daily basis?

Madhusudan Kela: That is the saddest personal thing for me, that in spite of making such repeated attempts... I feel very sad when Indians are not able to see returns in equities and they do not have timeframe. Basically, we have seen Rs 40,000 crores of redemption in last three-four years.

ET Now: That is nearly $8 billion.

Madhusudan Kela: It is a lot of money and a lot of this money is going into gold and real estate. People are disproportionately betting on gold and real estate and redeeming equity. I am sure this trend will reverse at some point of time and we will continue to make our effort because we are still believers in the long term India story and long term equity story. I hope people will find the rationale at some point of time but till then it is a disheartening story.

ET Now: But will this overall pessimism drive markets up, that nobody believes in Indian equities, on a daily basis Indian investors are only selling equities out?

Madhusudan Kela: But the fact is we are still at 5800, we are still at Rs 61 lakh crores in terms of market cap. So it is reflected in the market to some extent. Let us take a little optimistic view. Most people are predicting India is going to be a $6 trillion economy by 2020-2021. Even if you assume the current saving rate of 30%, you are going to save $2 trillion every year, which is the size of your GDP today.

Way back in 1991-1992, when domestic people participated, it was 11% of the total saving. I am saying forget 11%, even if 5% comes of that saving, we are talking of $100 billion coming from Indians every year. Now I do not know whether that trigger will be in 2015, 2014, 2016, 2018, but it will have to happen.

ET Now: So you see Indian retail investors making a comeback?

Madhusudan Kela: 100%, they have to. I am saying there is no choice.

ET Now: Are you reasonably certain that from a three-year timeframe, Indian equities will outperform fixed deposits?

Madhusudan Kela: I am sure. I am reasonably certain about it. Again, we have to always clarify... Unless there is some big catastrophe in the world and unless all these new programmes and reforms being initiated by the government go completely for a toss and in 2014 election, we have a completely anti-business government at the centre, which is too premature to discuss right now, but I am saying it is only in a catastrophic situation will I see equities not outperforming real estate.

In fact, we did a very interesting analysis and I must tell you this. We analysed 207 months of equities and we saw in how many months the equities were in what PE multiple band. So out of these 207 months, in 17 months equities were between the band of 13 to 14 PE multiple. And if you had invested here over the next two years, 90% of the time, i.e. 15 out of 17 times you would have made 50% return from the market in the next two years.

ET Now: So we are there now?

Madhusudan Kela: We are there and that is what the market is reflecting.

ET Now: So historically your data is suggesting that it is time to buy stocks?

Madhusudan Kela: That is what I am saying. Any decline is a time to buy and that makes this market even more interesting. I made three points -- 1) I like equities. Second, I am saying it is selective investing. Third, I am saying the institutional money is improving, it is higher than what it used to be in 2008.

Club all this and combine it with this volatility, something comes up. If a quality company goes down by 15%-20%, it is a perfect recipe for making money. If you are prepared, the premium for being prepared is extremely high in my opinion.